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Increase Split Loan?

Discussion in 'Accounting, Tax & Legal' started by Tobus, 23rd Jun, 2008.

  1. Tobus

    Tobus New Member

    Joined:
    23rd Jun, 2008
    Posts:
    2
    Location:
    ACT
    Hi,

    I have borrowed $540k and split it into 4 loans - a fixed/variable split for my house and 2 investment loans - one I bought shares with and one I invested in a joint venture with my boss. The package I am with allows me to adjust the amounts of these loans within the $540 limit as often as I like at no charge. I have paid of a sizeable portion of the variable mortgage which is available for redraw. I claim tax deductions on the interest of the two investment loans.

    What is the legality of increasing the investment loans and decreasing the mortgage loans by the returns of the investments if those returns are being reinvested?

    The scenarios are:
    The shares are on a dividend reinvestment plan paid every 6 months. No money changes hands, I just get a statement saying what the distribution was.

    The business venture normally pays all profits every 12 months. I submit an invoice and get paid into my bank account. As this is the first year we have decided to build a buffer and reinvest the profit. There will still be an invoice for the amount owed and a receipt for the additional investment, but the cash won't actually change hands.. although I could probably arrange it if it was important.

    My question is, since I am reinvesting the income (let's say $10k) of both of these investments, am I allowed to "move" $20k off the variable mortgage loan and put $10k on each of the corresponding investment loans?

    Toby
     
  2. Rob G.

    Rob G. Well-Known Member

    Joined:
    6th Jun, 2007
    Posts:
    717
    Location:
    Melbourne, VIC
    THIS IS NOT FINANCIAL ADVICE - you are responsible for checking whether any of this is good law and also whether it is applicable to your circumstances ......

    All these cashless reinvestments cause a problem according to TR 2000/2.

    It appears acceptable to pay income (not proceeds of an investment asset disposal) into the private account and then redraw from an investment account for income producing purposes.

    However, there is nothing that says you are allowed "notional" repayments & withdrawals.

    Even if you argue that you need to withdraw further funds to live off because you reinvested the income !!!!

    The courts look to the purpose of the funds physically withdrawn - TR 2004/4.

    Obviously a DRP helps reduce costs etc. so it may be more effective to keep this arrangement rather than purchase more on market - assuming you want more of the same investment (do the sums).

    Maybe your annual business income can be credited to your private account for 1 day then redrawn from an investment account and ploughed back into your business. Why not do it monthly ??

    Obviously an IO loan would be better in this strategy if you don't mind complicating the arrangement - you turn non-deductible debt into investment loans sooner.

    NB: First make sure the bank does allow you to redraw - many are shutting their books at the moment !!!!!!!!!!!

    Cheers,

    Rob
     
  3. DaveA

    DaveA Well-Known Member

    Joined:
    19th Feb, 2007
    Posts:
    617
    Location:
    Sydney, NSW
    Robs pretty spot on here...

    is it a portfolio style loan??? if so i imagine it could be ok...

    i agree with rob in saying its best to distribute cash to bank and redraw from seperate account, not all Mortgage brokers like these so for people reading the thread check with ur MB as to there recommendation...
     
  4. Tobus

    Tobus New Member

    Joined:
    23rd Jun, 2008
    Posts:
    2
    Location:
    ACT
    Thanks for the comments... if I understood correctly there's needs to be visible cash in and out of the loans, so the DRP is out, but the business income is OK if I go to the trouble of doing the cash transfers.

    Thanks for your help
    Toby